This passage is an excerpt from an article that originally
appeared in Bloomberg Personal Finance Magazine, December 1999
by Adam Smith.

12 MINDS THAT MADE THE MARKET

BY ADAM SMITH

Selecting
the "best of" anything - books, movies, presidents
- has to be subjective. Reviewing the past 100 years to cull a
list of people who have been most influential on how we invest
today makes the job even more complex, because what is most influential
in one era, another era may supersede or even reverse. One tends
to choose the highly visible on any such list, but the overlooked
people would make for an equally interesting discussion. If I asked
you who had the most influence on American life - just to use an
extreme example - you might well say John Locke, Thomas Jefferson,
or James Madison, but overlook the contribution of Thomas Crapper,
whose water closet relieved us of chamber pots.

More recently, we have seen Jeffrey Bezos and Jerry Yang become
multibillionaire business heroes, but there is no statue of Rick
Boucher in front of the headquarters of Amazon.com or Yahoo! In
1992, Congressman Boucher added a brief amendment to the National
Science Foundation Act, which allowed the Internet, created by
the government, to be used for commerce. Without Boucher, we'd
have no trillion-dollar Internet sector.

I met most of the dozen people profiled here as guests on Adam
Smith's Money World, so their presence remains vivid to me. I can
still hear them speaking. In 5 years, or 10, there will be a different
list. The level of a person's influence depends on the place you
sit, and the date you do your thinking. We are all prisoners of
our own experience.

In praise of those who've had the greatest influence on how we
invest today...

LEO MELAMED
THE TRILLION-DOLLAR GENIE

When the Chicago
Mercantile Exchange began the trading of currency contracts in
May 1972, its chairman, Leo Melamed, hoped it would save the
exchange, which was in serious trouble. Wall Street barely noticed.
What did a bunch of pork-belly traders know about currencies?
But Melamed's innovation had an enormous impact. The genie he released
girdles the globe. From currency contracts, the Merc went to T-bill
contracts, and then to the S&P 500 contract, whose dollar volume
today exceeds that of the NYSE. The ease of buying and selling
S&P contracts itself changed money management. Would you rather
have a T-bill or the market?

You could change your mind instantly and easily hedge a portfolio.
The introduction of the S&P contract in 1982 coincided with
the beginning of the long bull run, and may have given the market
an extra thrust. It also made Chicago more of a financial rival
to New York City. Critics said the Mere had commodified stocks. "I
don't accept the pejorative connotation," Melamed said. "It's
certainly more efficient, and the idea that index contracts are
speculative has been put to rest." But the revolution created by
the market in derivatives and indices might never have happened
except for a problem in onions.

The Chicago Merc has been Melamed's passion since the first day
he saw the trading pit as a runner for Merrill Lynch. Melamed came
to Chicago by a circuitous route. Born in Bialystok, Poland, to
parents who were teachers, Melarned had to learn six different
languages in two years as the family was swept up first by the
Nazis in the early days of World War II, and then by the Russians.
The family got a visa in Lithuania from the consul Chiune Sugihara,
the "Japanese Schindler," who is credited with saving some 6,000
Jews by granting them visas to Japan. The Melamed's trekked across
Siberia to Japan, and left for Chicago just before Pearl Harbor. "My
training was very practical," Melamed says. "I saw the Polish zloty,
the Lithuanian lit, the mark, the yen, and finally the dollar -
but the real value was what the currency would buy, not what a
government said. In Europe, the black market was the real market." Before
Melamed graduated from law school, he borrowed $3,000 for a seat
on the Merc and began trading while he practiced law. In 1967,
he elected to the board. He became chairman in 1969.

"I was the candidate of the reform crowd," Melamed said. "The
old crowd had played so many squeezes on onions that the government
banned onion trading. I instituted a rule book, with rules enforced.
And we had to diversify. We tried scrap steel, shrimp, and potatoes,
with little success. Meanwhile, I was reading everything by Milton
Friedman, who said fixed exchange rates were over, Bretton Woods
was finished. I took the first currency contract to him, and he
said, 'Wonderful! Do it!' and his feasibility study made him the
godfather to the project."

Melamed set up trading of S&P contracts as the International
Monetary Market, within the Merc, so that traders in financial
contracts wouldn't rub elbows with the pork-belly traders. When
the British opened their futures exchange in 1980, Melamed was
an adviser, and London was followed by Paris, Frankfurt, Sydney,
and the rest of the world. Anticipating the electronic globalization
of markets, Melamed worked with Reuters to set up Globex, the electronic
trading of futures.

Today the nominal value of financial contracts is $667 billion
a day, and the trading of contracts is part of the world financial
infrastructure. "Who wants to trade onions anyway?" he said.